Exchange Rate Regimes of CEE Countries on the way to the EMU: Nominal Convergence, Real Convergence and Optimum Currency Area Criteria

The paper addresses some issues which are still open in the process of inclusion of CEE countries in the EMU. First, what are the interests of both parties involved (CEE countries and the EU side) regarding the dynamics of the accession of CEE countries to the EMU, and related to this, what is its likely scenario (early or late inclusion in the EMU), taking into account the balance of powers between the two sides. Second, the paper discusses the criteria for measuring readiness of individual CEE countries for joining the EMU. The analysis is focused on the debate on nominal convergence (represented by the famous maastricht convergence criteria) versus real convergence (catching up in economic development). In short, the discussion concentrates on the question whether monetary integration is possible and desirable among countries at a different level of economic development. Finally, special attention is paid to optimum currency area criteria, not only as a theoretical background for monetary integration, but also as an additional insight into the measurement of relative suitability and readiness of individual candidate countries for joining the EMU. As an illustration, the paper attempts to measure some of the optimum currency area indicators for the case of Slovenia, and finds out that Slovenia is relatively quite suitable for joining monetary integration and relatively well prepared for joining the euro area. In particular, Slovenia is not expected to be exposed to serious asymmetric shocks, once Slovenia joins the EMU.Exchange Rate Regimes for CEEC, Optimum Currency Areas, Slovenia

Private-Sector Credit in Central & Eastern Europe: New (Over) Shooting Stars?

This paper analyzes the equilibrium level of private credit to GDP in 11 Central and Eastern European countries in order to see whether the high credit growth recently observed in some of these countries led to above equilibrium private credit to- GDP levels. We use estimation results obtained for a panel of small open OECD economies (out-of-sample sample) to derive the equilibrium credit level for a panel of transition economies (in-sample panel). We opt for this (out-of-sample) approach because the coefficient estimates for transition economies are fairly unstable. We show that there is a large amount of uncertainty to determine the equilibrium level of private credit. Yet our results indicate that a number of countries are very close or even above the estimated equilibrium levels, whereas others are still well below the equilibrium level.http://deepblue.lib.umich.edu/bitstream/2027.42/57232/1/wp852 .pd

Credit growth in Central and Eastern Europe: new (over)shooting stars?

This paper analyzes the equilibrium level of private credit to GDP in 11 Central and Eastern European countries in order to see whether the high credit growth recently observed in some of these countries led to above equilibrium private credit-to-GDP levels. We use estimation results obtained for a panel of small open OECD economies (out-of-sample panel) to derive the equilibrium credit level for a panel of transition economies (in-sample panel). We opt for this (out-of-sample) approach because the coefficient estimates for transition economies are fairly unstable. We show that there is a large amount of uncertainty to determine the equilibrium level of private credit. Yet our results indicate that a number of countries are very close or even above the estimated equilibrium levels, whereas others are still well below the equilibrium level. JEL Classification: C31, C33, E44, G21credit growth, credit to the private sector, equilibrium level of credit, initial undershooting, Transition Economies

Foreign Direct Investment and Productivity Spillovers: Updated Evidence from Central and Eastern Europe

The paper discusses the inflows of foreign direct investment into the CEE countries and focuses on analysis of productivity spillovers. An overview of the relevance of foreign firms in the CEE economies is presented. Using firm-level data on manufacturing industries for the period 2000–-2005, the total factor productivity of domestic firms is estimated using the Petrin and Levinsohn (2003) method and subsequently related within a panel data model to foreign presence in the same industry and in industries linked via the production chain. The presence of productivity spillovers is tested for across several sub-samples to detect possible conditionalities.Foreign direct investment, productivity, spillovers.

Competitiveness and the export performance of the euro area

Chapter 1 provides an overview and assessment of the price competitiveness and export performance of the euro area and the larger euro area countries, as well as an evaluation of how standard equations have been able to explain actual export developments. Chapter 2 carries out a constant market share analysis for the euro area and thereby sheds light on the reasons for movements in aggregate export market shares by looking at the sectoral and geographical composition of euro area exports. Chapter 3 looks at the evolution of the technological competitiveness of the euro area and major competitors – proxied by patenting activity and R&D expenditure – and analyses some structural indicators of competitiveness using survey data. Chapter 4 then looks at the impact of FDI on competitiveness and export performance. Finally, Chapter 5 summarises the main findings of the report, but also critically evaluates their importance and implications.

Monetary policy and the disinflation on the way to the euro in Slovenia

To cope with the inflation increase to almost 10%, coupled with a weakened external position, in 1999 the Bank of Slovenia (BoS) implemented inflation targeting within a managed float regime. On the basis of the estimated macroeconomic transmission, we argue in favour of using an interest rate rule to achieve price stability. Furthermore, the inflation response to shocks is found to be highly persistent, which points to a strong need for active macroeconomic policy to maintain price stability. The increase in interest rates after 2000 strongly contributed to resuming of the disinflation trend. While the exchange rate was roughly neutral, a moderately negative output-gap, falling oil prices and inflation expectations also contributed to disinflation.monetary policy framework; Slovenia; transmission mechanism; small-size dynamic macro models; interest rate channel; credit channel; exchange rate pass-through; disinflation; euro adoption; inflation; price stability; interest rates; macroeconomic policy; disinflation.

Foreign direct investment and productivity spillovers:updated evidence from Central and Eastern Europe

The paper discusses the inflows of foreign direct investment into the CEE countries and focuses on analysis of productivity spillovers. An overview of the relevance of foreign firms in the CEE economies is presented

Exchange rate regimes of CEE countries on the way to the EMU Nominal convergence, real convergence and optimum currency area criteria

Die Verfasser diskutieren offene Fragen im Zusammenhang mit dem Beitritt der Staaten Mittel- und Osteuropas zur Europaeischen Waehrungsunion: (1) Wie sieht die Interessenlage der alten und der neuen Mitglieder der Waehrungsunion in Bezug auf die Beitrittsdynamik aus und welches (zeitliche) Szenario erscheint am wahrscheinlichsten? (2) Welche Kriterien sollen zur Bestimmung des Beitrittszeitpunkts fuer einzelne Laender herangezogen werden? (3) Was ergibt sich aus der Theorie optimaler Waehrungsraeume fuer den Beitritt einzelner Laender zur Waehrungsunion? Die Verfasser exemplifizieren diesen Punkt am Beispiel Sloweniens, das sie fuer gut auf einen Beitritt zur Eurozone vorbereitet halten. (ICEUebers)'Central and Eastern European (CEE) countries are expected to join the European monetary union (EMU) in a couple of years after their accession to the EU. According to the official views of the European Commission and the European central bank (ECB), monetary integration of CEE countries in the euro area should be a multilateral, successive and phased process, leading finally to their adoption of the euro. The paper starts from the description of alternative exchange rate regimes currently in use in Central and Eastern European EU candidate countries. Their present exchange rate arrangements differ substantially, as they cover the whole spectrum of possible solutions, from currency boards to floating exchange rate regimes. By now it is known that these countries will first enter the EU and the ERM 2 (exchange rate mechanism, devised for the so-called pre-in countries, as a preparatory stage before their EMU membership), and only a few years later join the EMU and adopt the Euro. The paper therefore tries to evaluate present arrangements of the candidate countries from the point of view of how compatible these arrangements are with the future ERM 2 and EMU requirements. The paper addresses some issues which are still open in the process of inclusion of CEE countries in the EMU. First, what are the interests of both parties involved (CEE countries and the EU side) regarding the dynamics of the accession of CEE countries to the EMU, and related to this, what is its likely scenario (early or late inclusion in the EMU), taking into account the balance of powers between the two sides. Second, the paper discusses the criteria for measuring readiness of individual CEE countries for joining the EMU. The analysis is focused on the debate on nominal convergence (represented by the famous Maastricht convergence criteria) versus real convergence (catching up in economic development). In short, the discussion concentrates on the question whether monetary integration is possible and desirable among countries at a different level of economic development. Finally, special attention is paid to optimum currency area criteria, not only as a theoretical background for monetary integration, but also as an additional insight into the measurement of relative suitability and readiness of individual candidate countries for joining the EMU. As an illustration, the paper attempts to measure some of the optimum currency area indicators for the case of Slovenia, and finds out that Slovenia is relatively quite suitable for joining monetary integration and relatively well prepared for joining the euro area. In particular, Slovenia is not expected to be exposed to serious asymmetric shocks, once Slovenia joins the EMU.' (author's abstract)German title: Wechselkursregimes ostmitteleuropaeischer Laender auf dem Weg in die Europaeische Waehrungsunion: nominale Konvergenz, reale Konvergenz und die Kriterien optimaler WaehrungsraeumeAvailable from Freie Universitaet Berlin, FB Politik- und Sozialwissenschaften, Otto-Suhr-Institut fuer Politikwissenschaft Jean Monnet Centre of Excellence, Berlin (DE) / FIZ - Fachinformationszzentrum Karlsruhe / TIB - Technische InformationsbibliothekSIGLEDEGerman